================================================================================
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the quarterly period ended MARCH 31, 2000.

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

                        Commission file number _________

                           EXCHANGE APPLICATIONS, INC.
                           ---------------------------
             (Exact name of registrant, as specified in its charter)

             DELAWARE                                        04-3338916
             --------                                        ----------
   (State or other jurisdiction of                        (I.R.S. Employer
    incorporation or organization)                       Identification No.)

                  89 SOUTH STREET, BOSTON, MASSACHUSETTS 02111
                  --------------------------------------------
               (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code 617-737-2244

------------------------------------------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report)

Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

                                  Yes [X]  No [ ]

State the number of shares outstanding of the registrant's common stock, as of
the latest practicable date.

      Number of Shares   25,736,631           Outstanding as of    May 5, 2000
                         ----------                                -----------

================================================================================
<PAGE>

                           Exchange Applications, Inc.

               Form 10-Q for the Three Months Ended March 31, 2000

                                Table of Contents

                          PART I. FINANCIAL INFORMATION
                                                                           Page
                                                                          Number
                                                                          ------
Item 1.         Financial Statements (unaudited):

                Consolidated Balance Sheets as of March 31, 2000 and
                December 31, 1999                                            3

                Consolidated Statements of Operations for the three
                months ended March 31, 2000 and 1999                         4

                Consolidated Statements of Cash Flows for the three
                months ended March 31, 2000 and 1999                         5


                Notes to Consolidated Financial Statements                   6

Item 2.         Management's Discussion and Analysis of Financial
                Condition and Results of Operation                           8

Item 3.         Quantitative and Qualitative Disclosure about Market Risk    14


                           PART II. OTHER INFORMATION

                                                                           Page
                                                                          Number
                                                                          ------

Item 4.         Submission of Matters to a Vote of Security Holders          14

Item 6.         Exhibits and Reports on Form 8-K                             14

                Signatures                                                   15





                                       2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                  EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE><CAPTION>
                                                                        DECEMBER 31,    MARCH 31,
                                                                           1999           2000
                                                                         ---------      ---------
<S>                                                                      <C>            <C>
                                     ASSETS
     Current assets:
       Cash and cash equivalents ...................................     $  14,678      $  12,872
       Marketable securities .......................................        14,429         15,985
       Accounts receivable, net ....................................        11,329         12,533
       Prepaid expenses and other current assets ...................         2,933          2,177
                                                                         ---------      ---------
              Total current assets .................................        43,369         43,567
     Property and equipment, net ...................................         4,570          6,704
     Long-term marketable securities ...............................         5,030          4,047
     Non current assets from MicroStrategy Incorporated transaction.        62,030         57,125
     Other assets ..................................................            66            215
     Goodwill and intangible assets ................................          --           42,159
                                                                         ---------      ---------
              Total assets .........................................     $ 115,065      $ 153,817
                                                                         =========      =========
                      LIABILITIES AND STOCKHOLDERS' EQUITY
     Current liabilities:
       Accounts payable ............................................     $     701      $   1,891
       Accrued expenses ............................................         5,167          6,496
       Current portion of Microstrategy Incorporated obligation.....        15,377         21,337
       Deferred revenue ............................................         6,455          4,068
                                                                         ---------      ---------
              Total current liabilities ............................        27,700         33,792
     MicroStrategy Incorporated obligation, net of current portion .        16,653         11,339

     Stockholders' equity:
       Preferred Stock; $.001 par value --
         10,000,000 shares authorized, none issued and outstanding .          --             --
       Common Stock, $.001 par value --
         150,000,000 shares authorized; 26,406,732 and 24,053,471
        shares issued at March 31, 2000 and December 31, 1999,
        respectively ...............................................            24             26
       Additional paid-in capital ..................................        56,869        118,151
       Accumulated deficit .........................................        (5,513)        (8,908)
       Due from officer ............................................          (125)          (125)
       Deferred compensation .......................................          (517)          (441)
       Cumulative translation adjustment ...........................            39              3
       Unrealized gain (loss) on marketable securities .............           (65)           (20)
       Stock Subscription ..........................................        20,000           --
       Treasury stock, at cost; 366,565 shares at December 31, 1999
       and March 31, 2000, .........................................          --             --
                                                                         ---------      ---------
              Total stockholders' equity ...........................        70,712        108,686
                                                                         ---------      ---------
              Total liabilities and stockholders' equity ...........     $ 115,065      $ 153,817
                                                                         =========      =========

 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                        3
<PAGE>

                  EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
               (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

<TABLE><CAPTION>
                                                                                   THREE MONTHS ENDED
                                                                                         MARCH 31,

                                                                                   1999             2000
                                                                               ------------     ------------
<S>                                                                            <C>              <C>
     Revenues:
       Software license fees .............................................     $      5,008     $     10,262
       Services and maintenance ..........................................            3,457            4,900
                                                                               ------------     ------------
              Total revenues .............................................            8,465           15,162
     Cost of revenues:
       Software license fees .............................................              101              141
       Services and maintenance ..........................................            1,960            3,343
                                                                               ------------     ------------
              Total cost of revenues .....................................            2,061            3,484
                                                                               ------------     ------------
     Gross profit ........................................................            6,404           11,678
     Operating expenses:
       Sales and marketing ...............................................            3,195            4,841
       Research and development ..........................................            1,941            3,212
       General and administrative ........................................              968            1,945
       Amortization of MicroStrategy non current asset ...................             --              4,905
                                                                               ------------     ------------
              Total operating expenses ...................................            6,104           14,903
                                                                               ------------     ------------
     Income (loss) from operations .......................................              300           (3,225)
     Interest income (expense):
       Interest income ...................................................              228              475
       Interest expense associated with the MicroStrategy obligation .....             --               (645)
                                                                               ------------     ------------
              Total interest income (expense), net .......................              228             (170)
                                                                               ------------     ------------
     Income (loss) before provision for income taxes .....................              528           (3,395)
     Provision for income taxes ..........................................              195             --
                                                                               ------------     ------------
     Net income (loss) ...................................................     $        333     $     (3,395)
                                                                               ============     ============
     Net income (loss) per share (Note 2(c)):

     Basic net income (loss) per share applicable to common stockholders .     $       0.02     $      (0.14)
                                                                               ============     ============

     Diluted net income (loss) per share applicable to common stockholders     $       0.01     $      (0.14)
                                                                               ============     ============

     Basic weighted average common shares outstanding ....................       20,564,672       25,654,120
                                                                               ============     ============

     Diluted weighted average common shares outstanding ..................       24,310,170       25,654,120
                                                                               ============     ============

 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       4
<PAGE>
                  EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE><CAPTION>
                                                                                             THREE MONTHS ENDED
                                                                                                   MARCH 31,
                                                                                              1999          2000
                                                                                            --------      --------
<S>                                                                                         <C>           <C>
     Cash flows from operating activities:
       Net income (loss) ..............................................................     $    333      $ (3,395)
       Adjustments to reconcile net income (loss) to net cash used in operating activities
       Depreciation and other amortization ............................................          610           291
       Amortization of MicroStrategy asset ............................................         --           4,905
       Compensation expense associated with stock options .............................           68            62
       Non cash interest expense related to MicroStrategy obligation ..................         --             645
       Changes in operating assets and liabilities--
        Accounts receivable ...........................................................         (991)       (1,021)
        Prepaid expenses and other current assets .....................................         (321)          931
        Accounts payable ..............................................................          531           590
        Accrued expenses ..............................................................       (1,760)       (1,591)
        Deferred revenue ..............................................................          509        (2,387)
                                                                                            --------      --------
             Net cash used in operating activities ....................................       (1,340)         (651)
                                                                                            --------      --------
     Cash flows from investing activities:
       Purchases of marketable securities .............................................         (171)         (528)
       Purchases of property and equipment ............................................         (959)       (2,491)
       Increase in other assets .......................................................           (8)         (149)
                                                                                            --------      --------
             Net cash used in investing activities ....................................       (1,138)       (3,168)
                                                                                            --------      --------
     Cash flows from financing activities:
       Repayments under capital leases ................................................          (63)         --
       Issuance of common stock under ESPP ............................................         --             209
       Exercise of common stock options ...............................................           65         1,840
                                                                                            --------      --------
             Net cash provided by financing activities ................................            2         2,049
                                                                                            --------      --------
     Effect of exchange rate changes on cash and cash equivalents .....................         --             (36)
                                                                                            --------      --------
     Net decrease in cash and cash equivalents ........................................       (2,476)       (1,806)
                                                                                            --------      --------
     Cash and cash equivalents, beginning of period ...................................        5,210        14,678
                                                                                            --------      --------
     Cash and cash equivalents, end of period .........................................     $  2,734      $ 12,872
                                                                                            ========      ========
     Supplemental disclosure of cash flow information --

       Cash paid for interest .........................................................     $      8      $   --
                                                                                            ========      ========
       Cash paid for income taxes .....................................................     $      5      $    127
                                                                                            ========      ========
     In connection with the acquisition of Knowledge Stream Partners on March 31, 2000,
     the following non-cash transaction occurred:

       Fair value of assets acquired ..................................................     $   --        $(42,769)
       Fair value of liabilities assumed ..............................................         --           2,760
       Issuance of common stock and stock options .....................................         --          39,579
                                                                                            --------      --------
       Acquisition costs ..............................................................     $   --        $    430
                                                                                            ========      ========
 The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
                                       5
<PAGE>
                  EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  BACKGROUND AND BASIS OF PRESENTATION

     Exchange Applications, Inc. and its subsidiaries (the "Company") provide
enterprise Customer Relationship Management (eCRM) solutions that optimize
interactive relationships between customers and companies. Based on the
principles of permission-based marketing and a single view of the customer, its
eCRM software helps ensure that customer communications are relevant, timely and
coordinated across all customer channels. By bridging online and offline
customer communications, Exchange Applications facilitates higher return on
investment on emarketing and ecommerce practices. The Company's solution set
spans several products and services, including: (i) Xchange Dialogue for
Marketing for creating and executing customer communications across all
channels, (ii) Xchange Real Time for planning and synchronizing customer
communications across all channels in real-time, (iii) Xchange Dialogue for
eMessaging for creating and executing Web-based customer communications, and
(iv)Xchange Optimizer for web-based customer analytics and measurement.

(2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements are unaudited and have
been prepared in accordance with generally accepted accounting principles. These
statements include the accounts of Exchange Applications and its wholly owned
subsidiaries.

(b)  INTERIM FINANCIAL REPORTING

     Certain information and footnote disclosures normally included in the
Company's annual consolidated financial statements have been condensed or
omitted. The interim consolidated financial statements, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the operating results for the
interim periods ended March 31, 1999 and 2000, respectively. The results of
operations for the interim periods are not necessarily indicative of the results
of operations to be expected for the entire year. It is suggested that these
interim consolidated financial statements be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1999,
which are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 2000.

(c)  NET INCOME (LOSS) PER SHARE

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, EARNINGS PER SHARE, basic and diluted net loss per common share for the
three months ended March 31, 2000 is calculated by dividing the net loss
applicable to common stockholders by the weighted average number of vested
common shares outstanding.

     For the three months ended March 31, 1999 basic net income per common share
is calculated by dividing the net income applicable to common stockholders by
the weighted average number of vested common shares outstanding for the three
month period then ended. Diluted net income per common share for the three
months ended March 31, 1999 is calculated by dividing the net income applicable
to common stockholders by the weighted average number of vested common shares
outstanding and the dilutive effect of potential common shares, consisting of
outstanding stock options and unvested common shares, as determined using the
treasury stock method in accordance with SFAS No. 128.

                                       6
<PAGE>

                  EXCHANGE APPLICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The following table reconciles the weighted average common shares
outstanding to the shares used in the computation of basic and diluted weighted
average common shares outstanding:

                                                  THREE MONTHS ENDED MARCH 31,

                                                       1999          2000
                                                   ----------     ----------
                   Weighted average common
                     shares outstanding ......     20,636,824     24,654,120

                   Less: Weighted average
                     unvested common shares
                     outstanding .............         72,152           --
                                                   ----------     ----------
                   Basic and diluted weighted
                     average common shares
                     outstanding .............     20,564,672     24,654,120

                   Add: Dilutive potential
                   common shares from stock
                   options and unvested common
                   stock .....................      3,745,498           --
                                                   ----------     ----------
                   Diluted weighted average
                   common shares outstanding .     24,310,170     24,654,120
                                                   ==========     ==========

     Diluted weighted average shares outstanding for the three months ended
March 31, 2000 exclude the potential common shares from stock options because to
include such shares would have been antidilutive. As of March 31, 2000,
4,916,474 potential common shares were outstanding.

(d)  COMPREHENSIVE INCOME (LOSS)

     The Company has adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 requires that items defined as other comprehensive income (loss), such
as foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income (loss) be reported separately from retained earnings and additional
paid-in capital in the equity section of the balance sheet. The components of
comprehensive income (loss) for the three months ended March 31, 1999 and 2000
are as follows (in thousands):

                                             THREE MONTHS ENDED
                                                  MARCH 31,
                                              1999         2000
                                            -------      -------
Comprehensive income (loss):                   (IN THOUSANDS)

   Net income (loss)                        $   333      $(3,395)
   Other comprehensive income (loss):
       Foreign currency adjustment             --            (36)
       Marketable securities adjustment          (3)          45
                                            -------      -------
   Comprehensive income (loss)              $   330      $(3,386)
                                            =======      =======

(e)  CASH EQUIVALENTS AND MARKETABLE SECURITIES

     The Company accounts for cash equivalents and marketable securities in
accordance with SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. Cash equivalents are short-term, highly liquid investments
with original maturity dates of three months or less. Cash equivalents are
carried at amortized cost, which approximates fair market value. The Company's
marketable securities are classified as available-for-sale and are recorded at

                                       7
<PAGE>

fair value with any unrealized gain or loss recorded as an element of
stockholders' equity. As of December 31, 1999 and March 31, 2000, the Company's
marketable securities consisted of investment grade corporate bonds. As of
December 31, 1999 and March 31, 2000, the Company had recorded unrealized losses
of approximately $65,000 and $20,000, respectively.  At March 31, 2000, the
weighted average number of days until maturity of the Company's marketable
securities was 117 days.

(f)  ACQUISITION OF KNOWLEDGE STREAM PARTNERS, INC.

     On March 31, 2000, the Company acquired Knowledge Stream Partners, Inc.
(KSP), a Company that specializes in consulting and software development for
advanced data mining and online/offline analytics. The Company exchanged 821,776
shares of its common stock for all the outstanding shares of common stock of
KSP; 328,710 of these shares issued were placed into escrow as security for
indemnification obligations of KSP and contingent purchase price adjustments
pursuant to the merger agreement. In addition, the Company assumed all of the
outstanding employee stock options of KSP which converted into options to aquire
124,851 shares of Exchange Applications common stock. As of the date of the
consummation of the acquisition, the common stock issued by the Company and the
converted stock options had a market value of $39,579,000 based on a per share
value of $52.92. The total purchase price of $42,769,000 excludes 205,444 shares
of common stock valued at $10,872,000 whose release from escrow is contingent
upon the achievement of future operating results by KSP through December 2000.

     The purchase price was allocated based upon the fair value of the
identified assets acquired. These allocations represent the fair values
determined by an independent appraisal. The allocation has resulted in acquired
goodwill of $41,259,000 which is being amortized on a straight line basis over a
five year period. The Company has also allocated $900,000 to the assembled work
force aquired from KSP, which is being amortized on a straight line basis over a
three year period.

     The following unaudited proforma information presents a summary of
consolidated results of operations as if the acquisition had occurred on January
1, 1999:

                                              THREE MONTHS ENDED
                                                   MARCH 31,
                                              1999           2000
                                              ----           ----
                                                 (IN THOUSANDS)

          Revenues.....................    $    9,763     $   15,186

          Net Loss.....................        (1,473)        (7,860)

          Basic and diluted net loss per
          share........................         (0.07)         (0.31)

          Basic and diluted weighted
          average common shares
          outstanding..................    21,386,448     25,466,765

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

     THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. EXCHANGE APPLICATIONS' ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS FORM 10-Q.

OVERVIEW

     Exchange Applications, Inc. and its subsidiaries (the "Company") provide
enterprise Customer Relationship Management (eCRM) solutions that optimize
interactive relationships between customers and companies. Based on the
principles of permission-based marketing and a single view of the customer, its
eCRM software helps ensure that customer communications are relevant, timely and
coordinated across all customer channels. By bridging online and offline
customer communications, Exchange Applications facilitates higher ROI on

                                       8
<PAGE>

emarketing and ecommerce practices. The Company's solution-set spans several
products and services, including:

     o   Xchange Dialogue for Marketing for creating and executing customer
         communications across all channels;

     o   Xchange Real Time for planning and synchronizing customer
         communications across all channels in real-time;

     o   Xchange Dialogue for eMessaging for creating and executing Web-based
         customer communications; and

     o   Xchange Optimizer for web-based customer analytics and measurement.

     The Company was incorporated in November 1996. Prior to incorporation, the
Company operated as a separate division of two entities, Grant & Partners, Inc.
("GPI") and Grant & Partners Limited Partnership ("GPLP"). The Company's
activities during its early stages of operation focused on the development of
software solutions to provide customer communications support to businesses. In
1995, the Company began providing professional services in the areas of
marketing program design and execution and data warehousing. In March 1997, the
Company ceased providing marketing program design services. The Company's
development efforts culminated in the introduction to the market in July 1996 of
Xchange Dialogue for Marketing, the Company's marketing automation software
product. Since the introduction of Xchange Dialogue for Marketing, the Company
has continued to focus significant resources on the development of additional
functionality and features of the Xchange Dialogue for Marketing product as well
as the development and acquisition of additional solutions within the Company's
eCRM solution set including Xchange Real Time, Xchange Dialogue for eMessaging,
and Xchange Optimizer. The Company also has continued to expand its marketing
activities, build the Exchange Applications identity, develop the competencies
of the professional services group, build international sales and distribution
channels and develop its general and administrative infrastructure. The Company
has shifted its primary business focus from providing services to selling
software products. However, the Company believes that continuing to provide
superior professional services will be critical to maximizing its opportunities
for future revenues.

     In August 1999, the Company acquired eXstatic (formerly Gino Borland, Inc.)
in a transaction accounted for as a pooling of interest. eXstatic develops and
markets software products that enable businesses to plan, create and execute
highly personalized, permission-based email communications based on customer
profiles. In accordance with pooling of interests accounting, the results of
operations have been restated to reflect the historical results of eXstatic on
an as combined basis. In March 2000, the Company aquired Knowledge Stream
Partners (KSP) in a transaction accounted for under the purchase method. KSP
specializes in consulting and software development for advanced data mining and
online/offline analytics. In connection with this transaction, the Company has
recorded $42,159,000 in goodwill which is being amortized over a five year
period as well as $900,000 of intangible assets related to the assembled
workforce aquired from KSP which is being amortized over a three year period.

     The Company generates revenue from software licenses, professional service
arrangements and software maintenance agreements. The Company recognizes
software license fee revenues upon execution of a license agreement and delivery
of the software, provided that the fee is fixed or determinable and deemed
collectible by management. If acceptance of the software by the licensee is
required, revenues are only recognized upon satisfaction of the foregoing
conditions and acceptance of the software. Revenues from professional service
arrangements are recognized on either a time and materials or
percentage-of-completion basis as the services are performed, provided that
amounts due from customers are fixed or determinable and deemed collectible by
management. Revenues related to software maintenance agreements are recognized
ratably over the term of the maintenance period. Amounts collected or billed
prior to satisfying the above revenue recognition criteria are reflected as
deferred revenue.

     Although the Company has experienced significant revenue growth recently,
there can be no assurance that such growth rates are sustainable and they should
not be relied upon as predictive of future performance. In addition, the timing

                                       9
<PAGE>

of license revenues is difficult to predict because of the length and
variability of the Company's sales cycle. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stage of development, particularly in new
and rapidly evolving markets. There can be no assurance that the Company will be
successful in addressing such risks and difficulties or that it will continue to
increase revenues.

TRANSACTION WITH MICROSTRATEGY, INC.

     In December 1999, the Company entered into a strategic alliance
relationship with MicroStrategy, Inc for the development of the Xchange
Optimizer product to provide exstensive customer-analytic reporting to help
marketers and others evaluate and understand customer behavior.

     The Company agreed to pay to MicroStrategy an aggregate of $65 million in
cash and the Company's common stock over the course of two years commencing in
December 1999. In return, the Company will receive the following:

     o   licenses for MicroStrategy applications valued at $30 million for the
         purpose of developing new products using MicroStrategy technology along
         with distribution rights to existing and newly developed MicroStrategy
         products on a royalty-free basis for 3 1/2 years;

     o   a dedicated research and development workforce from MicroStrategy for a
         3 1/2 year term valued at $30 million to develop new products using
         MicroStrategy's technology; and

     o   prepaid co-marketing by MicroStrategy over 18 months valued at $5
         million.

     The Company has capitalized the present value of the $65 million payments,
which totaled $62.0 million, and will amortize this amount to operations over
the terms of the underlying arrangements, which is approximately 42 months. The
Company recognized interest expense of $645,000 related to the Microstrategy
obligation during the three month period ended March 31, 2000. The Company also
recognized $4,905,000 in amortization expense related to the MicroStrategy non
current asset. As a result of the amortization of the non current asset
associated with the transaction with MicroStrategy, as well as the related
interest expense, the Company expects to not be profitable for the foreseeable
future.

                                  RISK FACTORS

     Statements in this report concerning the future results of operations,
financial condition and business of the Company are "forward-looking" statements
as defined in the Securities Act of 1933 and the Securities Exchange Act of
1934. Investors are cautioned that information contained in these
forward-looking statements is inherently uncertain, and that actual performance
and results may differ materially due to numerous risk factors, including but
not limited to the following: LIMITED OPERATING HISTORY MAKES EVALUATING OUR
BUSINESS DIFFICULT; RECENT TRANSACTIONS WITH MICROSTRATEGY INCORPORATED WILL
RESULT IN SHORT TERM LOSSES; QUARTERLY OPERATING RESULTS MAY FLUCTUATE
SIGNIFICANTLY AND INVESTORS SHOULD NOT RELY ON THEM TO PREDICT OUR FUTURE
PERFORMANCE; OUR BUSINESS MAY SUFFER IF OUR SOLUTIONS ARE NOT ACCEPTED BY NEW
CUSTOMERS; THE LOSS OF ONE OF OUR LARGEST CUSTOMERS COULD CAUSE OUR REVENUES TO
DROP QUICKLY AND UNEXPECTEDLY; WE NEED TO MANAGE OUR GROWTH EFFECTIVELY OR WE
MAY NOT SUCCEED; IF WE LOSE OUR KEY PERSONNEL, OR FAIL TO ATTRACT AND RETAIN
ADDITIONAL PERSONNEL, OUR BUSINESS AND GROWTH MAY SUFFER; OUR BUSINESS WILL NOT
GROW IF WE DO NOT KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES; OUR STOCK PRICE
OR OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO EFFICIENTLY
INTEGRATE ACQUISITIONS; COMPETITION COULD REDUCE OUR MARKET SHARE AND HARM OUR
BUSINESS; IF WE DO NOT SUCCESSFULLY MAINTAIN OUR RELATIONSHIPS WITH INDIRECT
DISTRIBUTION CHANNELS, OUR SALES COULD DECLINE OR COULD GROW MORE SLOWLY THAN
EXPECTED; WE HAVE A LIMITED ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
AND OTHERS COULD INFRINGE ON OR MISAPPROPRIATE OUR PROPRIETARY RIGHTS; IF WE DO
NOT SUCCESSFULLY GROW AND MANAGE OUR INTERNATIONAL OPERATIONS, OUR BUSINESS WILL
SUFFER; CURRENCY FLUCTUATIONS AND GENERAL ECONOMIC CONDITIONS IN OUR FOREIGN
MARKETS MAY IMPACT OUR CUSTOMERS' SPENDING AND THE VALUE OF MONEY OWED TO US;
OUR FOUNDERS, OFFICERS AND PRINCIPAL STOCKHOLDERS HAVE SUBSTANTIAL CONTROL OVER
OUR VOTING STOCK AND HAVE THE ABILITY TO MAKE DECISIONS THAT COULD ADVERSELY
AFFECT OUR STOCK PRICE; WE MAY BE SUBJECT TO FUTURE PRODUCT LIABILITY CLAIMS;

                                       10
<PAGE>

YEAR 2000 PROBLEMS MAY DISRUPT OUR BUSINESS; OUR COMMON STOCK PRICE IS LIKELY TO
BE VOLATILE AND COULD DROP UNEXPECTEDLY; WE HAVE ADOPTED ANTI-TAKEOVER
PROVISIONS THAT COULD AFFECT THE MARKET PRICE OF OUR COMMON STOCK OR OUR ABILITY
TO SELL OUR BUSINESS. The Company's filings with the Securities and Exchange
Commission, including its Annual Report on Form 10-K for the year ended December
31, 1999, contain additional information concerning such risk factors.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 "Accounting for Certain Transactions involving Stock
Compensation, an interpretation of APB Opinion No. 25." This interpretation
clarifies the application of Opinion No. 25, among others issued, (a) the
definition of employees for purposes of applying Opinion No.25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The Interpretation is effective
July 1, 2000 and the effects of applying the Interpretation are recognized on a
prospective basis. The Company does not expect that the adoption of the
Interpretation will have a material impact on its financial condition or results
of operations.

     THREE MONTHS ENDED MARCH 31, 1999 AND 2000

     REVENUES

     The Company's total revenues increased 79.1% from $8.5 million in the three
months ended March 31, 1999 to $15.2 million for the three months ended March
31, 2000. This increase in total revenues can be attributed to a number of
factors, including:

     o   an increase in the Company's sales force from 22 direct sales
         representatives at March 31, 1999 to 29 at March 31, 2000;

     o   an increase in international revenues from the Company's subsidiaries
         in the United Kingdom and Australia; and

     o   an increase in services and maintenance revenues from the Company's
         growing customer base

     o   an increase in software revenues from indirect channels, including $3.5
         million from the designation by MicroStrategy of Strategy.com
         affiliates for the Xchange Dialogue for eMessaging product through the
         Strategy.com web service.

     Software license fee revenues increased 104.9% from $5.0 million, or 59.2%
of total revenues, in the three months ended March 31, 1999 to $10.3 million, or
67.7% of total revenues, in the three months ended March 31, 2000. In addition
to the $3.5 million of Strategy.com affiliate revenues, the increase in software
license fee revenues was due to increased market awareness of the Xchange
Dialogue for Marketing product, and revenue from the Company's Xchange Dialogue
for eMessaging software product.

     Services and maintenance revenues increased 41.7% from $3.5 million or
40.8% of total revenues, in the three months ended March 31, 1999 to $4.9
million, or 32.3% of total revenues, in the three months ended March 31, 2000.
The growth of services and maintenance revenues was directly attributable to
additional service engagements and maintenance fees from the Company's increased
base of customers. The decrease in services and maintenance revenues as a
percentage of total revenues was primarily attributable to the growth in
software license fee revenues at a faster pace than services and maintenance
revenues.

     For the three months ended March 31, 2000, the Company's top five customers
accounted for 59.0% of total revenues as compared to 48.1% of total revenues for
the three months ended March 31, 1999. None of the top five customers during the
three months ended March 31, 2000 were top five customers during the three
months ended March 31, 1999. The increase in the Company's top five customers as
a percentage of total revenue during the three months ended March 31, 2000 as
compared to the same period in 1999 relates primarily to the $5.0 million in
software license fee revenue recognized in connection with the MicroStrategy
transaction entered into in the fourth quarter of 1999. The two largest
customers during the three months ended March 31, 2000 represented 33.8% and
8.1% of total revenues, respectively, while the two largest customers for the
three months ended March 31, 1999 represented 18.1%, and 9.2%, respectively, of
the Company's total revenues.

     Revenues from customers outside North America were $3.4 million for the
three months ended March 31, 2000, representing approximately 22% of total
revenues as compared to $1.5 million or approximately 18% of total revenues for
the comparable period in the prior year.

     COST OF REVENUES

     Total cost of revenues as a percentage of total revenues declined from
24.3% in the three months ended March 31, 1999 to 23.0% in the three months
ended March 31, 2000.

                                       11
<PAGE>

     Cost of software license fees consists primarily of royalty payments made
to third parties for licensed intellectual property included in the Xchange
Dialogue for Marketing product, and costs associated with software packaging and
distribution. In absolute dollars, cost of software license fees increased from
$101,000 for the three months ended March 31, 1999 to $141,000 for the three
months ended on March 31, 2000. Cost of software license fees, however,
decreased as a percentage of total revenues from 1.2% to 0.9% for the three
months ended March 31, 1999 and 2000, respectively. Cost of software license
fees as a percentage of software license fee revenues decreased from 2.0% to
1.4% for the three months ended March 31, 1999 and 2000, respectively. The
increase in cost of software license fees for the three months ended March 31,
2000 over March 31, 1999 resulted from increased shipments of Xchange Dialogue
for Marketing and Xchange Dialogue for eMessaging software and, therefore, the
associated royalty expense payable to third parties and costs associated with
software packaging and distribution.

     The Company's cost of services and maintenance consists primarily of
personnel, facility and system costs incurred in providing professional
consulting services, training, hosted software services for the Xchange Dialogue
product suite, and customer support services. As a result of the increased
software license fee revenues, cost of services and maintenance revenues as a
percentage of total revenues decreased from 23.2% for the three months ended
March 31, 1999 to 22.0% for the three months ended March 31, 2000. Cost of
services and maintenance as a percentage of services and maintenance revenues
was 56.7% and 68.2% for the three months ended March 31, 1999 and 2000,
respectively. The increase was attributable primarily to the increased
investments by the Company in the services infrastructure, including hardware
and personnel requirements associated with the hosted Xchange Dialogue services
offering.

     Overall gross margin increased from 75.7% for the three months ended March
31, 1999 to 77.0% for the three months ended March 31, 2000 due primarily to
increased software sales of the Xchange Dialogue product suite.

     OPERATING EXPENSES

     SALES AND MARKETING. The Company's sales and marketing expenses consist
primarily of salaries for sales and marketing personnel, commissions, travel and
promotional expenses. For the three months ended March 31, 1999 and 2000, sales
and marketing expenses were 37.7% and 31.9% of total revenues, or $3.2 million
and $4.8 million, respectively. The increase is primarily attributable to an
increase in sales and marketing personnel from 56 at March 31, 1999 to 71 at
March 31, 2000, as well as increased spending on certain promotional activities
including trade shows, seminars, and the development of collateral materials
designed to increase awareness of the Company and its eCRM solution set.

     RESEARCH AND DEVELOPMENT. The Company's research and development expenses
consist primarily of employee salary and benefits, consultant costs, and
equipment and purchased software depreciation costs associated with new product
development, enhancement of existing products and quality assurance activities.
For the three months ended March 31, 1999 and 2000, research and development
expenses were 22.9% and 21.2% of total revenues, or $1.9 million and $3.2
million, respectively. This increase in absolute dollars was primarily a result
of the addition of 43 research and development personnel, including contractors,
in the three months ended March 31, 2000 as compared to the same period in 1999.
Total revenues increased at a faster pace than research and development
expenditures, resulting in a decrease in total research and development expense
as a percentage of total revenues.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $968,000, or 11.4% of total revenues, for the three months ended March 31,
1999 to $1.9 million, or 12.8% of total revenues, for the three months ended
March 31, 2000. The increase in absolute dollars was the result of the addition
of 13 employees to its finance, information systems, and human resource
departments between March 31, 1999 and March 31, 2000.

INTEREST INCOME (EXPENSE), NET

     Net interest income increased from $228,000 for the three months ended
March 31, 1999 to $475,000 for the three months ended March 31, 2000 primarily
as a result of interest earned on proceeds from the Company's second public
offering

                                       12
<PAGE>

completed in June 1999. Interest expense of $645,000 for the three months ended
March 31, 2000 related to the MicroStrategy obligation.

PROVISION FOR INCOME TAXES.

     No provision for foreign, federal, or state income taxes was recorded for
the three months ended March 31, 2000 because the Company incurred a net loss
during the three month period. For the three months ended March 31, 2000 the
Company recorded an income tax provision of $195,000, or 37% of the net income
before income taxes.

LIQUIDITY AND CAPITAL RESOURCES

     As of March 31, 2000 the Company had $28.9 million in cash and short-term
investments and an additional $4.0 million of long-term investments. In June
1999, the Company modified the terms of its revolving note agreement with Fleet
National Bank, increasing the credit limit from $2.0 million to $5.0 million. It
is the Company's belief that its existing balance of cash, cash equivalents and
short-term investments, combined with its $5.0 million revolving note agreement
will be sufficient to meet the Company's working capital and anticipated capital
expenditure needs for at least the next 12 months. Thereafter, the Company may
require additional sources of funds to continue to support our business. There
can be no assurance that such capital, if needed, will be available or will be
available on terms the Company finds acceptable.

     Cash and cash equivalents as of March 31, 2000 decreased $1.8 million from
December 31, 1999. Net cash used operations of approximately $651,000 resulted
primarily from the payment of commissions and bonuses related to the year ended
December 31, 1999 and the recognition of $1.5 million of deferred revenue
related to the MicroStrategy transaction offset by an increase in deferred
services backlog.

     Net cash used in investing activities of $3.2 million for the three months
ended March 31, 2000 was a result of property and equipment purchases related to
the increase in headcount, the expansion of the current facilities in Boston as
well as the acquisition of computer hardware and software for development and
internal operating systems. In addition, the Company purchased $528,000 of
investments with its available cash. Net cash provided by financing activities
of $2.0 million consisted of $1.8 million in proceeds from the exercise of
common stock options during the three months ended March 31, 2000, and $209,000
in proceeds from the issuance of common stock under the Company's Employee Stock
Purchase Plan.

     The Company had net operating loss carryforwards of approximately $1.6
million at March 31, 2000 to reduce future income taxes, if any. These
carryforwards expire through 2019 and are subject to review and possible
adjustment by the Internal Revenue Service. The Tax Reform Act of 1986 contains
provisions that may limit the amount of net operating loss and credit
carryforwards that the Company may utilize in any one year in the event of
certain cumulative changes in ownership over a three-year period in excess of
50% as defined. The Company believes that it experienced a change in ownership
in excess of 50%; however the Company does not believe that this change will
significantly impact its ability to utilize the net operating loss
carryforwards.

     The Company currently has sales offices in the United Kingdom, Japan,
Germany, and Australia, in addition to the United States. The Company's revenues
from international operations have been denominated in foreign currencies which
historically have been stable in relation to U.S. dollars. As a result, the gain
or loss from foreign currency transactions has not been material to its
operating results. As of March 31, 2000, the material assets and liabilities
denominated in foreign currencies include accounts receivable, accounts payable
and cash and cash equivalents. Due to the stability of the foreign economies
where these assets and liabilities are denominated, the Company has not adopted
a policy of hedging foreign currency risks. While it is anticipated that foreign
transactions will continue to be denominated in local currencies, the Company
expects to use hedging instruments to offset potential currency exposures
arising as its international operations expand into less stable economic
environments.

                                       13
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The following discussion about the Company's market risk disclosures
involves forward looking statements. Actual results could differ materially from
those projected in the forward-looking statements. The Company is exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. The Company does not use derivative financial instruments for speculative
or trading purposes.

     INTEREST RATE SENSITIVITY. The Company maintains a short-term investment
portfolio consisting mainly of corporate debt securities and U.S. government
agency treasury bills and notes with an average maturity of less then twelve
months. These available-for-sale securities are subject to interest rate risk
and will fall in value if market interest rates increase. If market interest
rates were to increase immediately and uniformly by 10 percent from levels at
March 31, 2000, the fair value of the portfolio would decline by an immaterial
amount.

     FOREIGN CURRENCY EXCHANGE RISK. With sales and services offices in the
United States, United Kingdom and Australia, and a global customer base, the
Company faces exposure to adverse movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse impact on the Company's financial results. Historically the
Company's primary exposure has been nondollar-denominated operating expenses and
sales by its United Kingdom subsidiary. The introduction of the Euro as a common
currency for members of the European Monetary Union, of which the United Kingdom
is not a member, occurred in January 1999. To date, we have not noticed any
material impact from the introduction of the Euro. In addition, as the Company
expands its sales and service presence in the Asia/Pacific region in 2000, its
exposure to foreign currency exchange rate risks from the more volatile
economies of this region will increase. The Company is prepared to hedge against
fluctuations in the British Sterling, Euro, or other foreign currency if the
exposure becomes material. As of March 31, 2000 the Company's material
nondollar-denominated assets and liabilities primarily consisted of cash,
accounts receivable, and accounts payable denominated in British Sterling and
Australian dollars.

PART II  -  OTHER INFORMATION

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Company submitted the approval of an amendment to the Company's
Certificate of Incorporation to increase the number of shares of common stock,
$.001 par value per share, which the Company is authorized to issue from
30,000,000 to 150,000,000 shares to a vote of the stockholders. The results of
the votes cast are as follows:

                       For                   Against                   Withheld
                       ---                   -------                   --------

                   4,700,261                 2,462,322                  23,526

ITEM 6.  EXHIBITS AND REPORTS  ON FORM 8-K.

            (a)     Exhibits

                    27  --  Financial Data Schedule

            (b)     Reports on Form 8-K

As a result of the acquisition of Knowledge Stream Partners on March 31,2000,
the Company filed a report on Form 8-K on April 17, 2000 and an amended report
on form 8-K/A on May 12, 2000.

                                       14
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                 Exchange Applications, Inc.
                                 (Registrant)

Dated:  May 15, 2000

                                 By: /s/ JOHN G. O'BRIEN
                                     ---------------------------------
                                     John G. O'Brien
                                     Vice President, Chief Financial Officer,
                                     Treasurer, Secretary
                                     (authorized officer and principal finance
                                     and accounting officer)























                                       15